The sky high costs of rock bottom rates

An update of Swiss Re's financial repression index shows that the costs of financial repression continue to creep higher.

Negative interest rates which prevail in many of the world's major economies are punishing households and long-term investors.

An update of Swiss Re's index shows that financial repression remains at very high levels – nearly eight years after the onset of the global financial crisis – as a result of central banks' continued low interest rate policies. Consequently, in 2015 households continued to suffer from substantial foregone interest rate income. In the US alone, they lost more than USD 200 billion, totalling USD 950 billion between 2008-2015.

Low and negative interest rates also harm the insurance industry that exists to protect families and properties from the unexpected and builds resilience in the financial system. Between the onset of the financial crisis and the end of 2015, financial repression cost US and EU insurers around USD 700 billion in foregone yield income. As a result, less money is available for investments that support sustainable economic growth.

The insights outlined in our new factsheet indicate that instead of overburdening central banks, we should focus on measures that support the real economy over the longer term. Closing the global infrastructure gap – more than USD 4 trillion of additional financing is needed by 2030 – is a good example. Long-term investors are well-positioned to step-in. But they face several hurdles, including regulatory uncertainty and the lack of a tradable infrastructure asset class. Removing these barriers could unlock long-term investors' funds and make a real difference to the economy.

Read more about financial repression, and recipes for future growth, in the article "Financial repression: back to the roots of 1914" published in the ICMA Quarterly Report (see page 11-12).

Published on 13th April 2016

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